Source: Procter & Gamble

Procter & Gamble (NYSE:PG) reported fiscal 2016 first quarter results on Friday. The owner of brands such as Tide detergent and Gillette razors saw its results hurt by a stronger U.S. dollar, which lowered the value of sales in foreign markets. Yet the company continued to reduce costs as it shed underperforming businesses, which led to a rise in profits.

Procter & Gamble results: The raw numbers 


Q1 2016

Q1 2015

Growth (YOY)


$16.527 billion

$18.771 billion


Net Income From Continuing Operations

$2.777 billion

$2.716 billion


EPS From Continuing Operations




Source: Procter & Gamble Q1 2016 earnings press release

What happened with Procter & Gamble this quarter?

  • Procter & Gamble's 12% year-over-year decline in sales was largely due to a substantial negative impact from foreign exchange, which reduced sales 9%. Excluding the effect of changes in foreign currency rates, organic sales declined 1%, as a 2% benefit from price increases and 1% positive impact from product mix were more than offset by a 4% reduction in shipment volume.
  • Despite the sales decline, P&G continues to improve its profitability as it progresses with its cost-cutting initiatives. "Core" (a non-GAAP measure that adjusts for restructuring and other non-recurring charges) gross margin and operating margin both increased by more than 300 basis points on a currency-neutral basis.
  • Core earnings per share were $0.98, a decrease of 1% compared to Q1 2015. However, excluding the impact of foreign exchange, currency-neutral Core earnings per share actually increased 12%.
  • Procter & Gamble remains a cash-flow-generating machine -- operating cash flow and free cash flow were $3.5 billion and $3 billion, respectively, in the first quarter. Management continues to pass the majority of that cash flow on to investors, with the company allocating $0.5 billion to share repurchases and $1.9 billion for dividends during the quarter.

What management had to say
"We delivered strong first quarter operating profit margin and free cash flow results," said CEO A.G. Lafley in a press release:

Top-line results were soft, as expected, given significant foreign exchange impacts, our deliberate choices to exit unprofitable businesses and the early stage of the improvement plans we're implementing in our largest categories and markets. We continue to make strong progress on productivity savings, which will fuel smart investments in top-line growth. We expect second quarter organic sales growth to be positive and to further strengthen in the back half as we invest to build awareness and trial of our consumer-preferred products and brands.

Looking forward
To reflect the impact of P&G's recently announced $12 billion deal to merge 43 of its beauty brands with Coty, P&G revised its fiscal year 2015 Core EPS -- which is based on earnings from continuing operations -- from the $4.02 per share originally reported to $3.76 per share. Based on this restated fiscal 2015 Core EPS figure of $3.76, P&G maintained its guidance for 2016 Core earnings per share of "slightly below to up mid-single digits" versus fiscal 2015 results.

P&G also maintained its outlook for full-year organic sales of "in-line to up low single digits" compared to fiscal 2015. Yet foreign exchange is likely to continue to take a toll on Procter & Gamble's results, with currency translation now expected to reduce full-year 2016 sales growth by five to six percentage points. All told, P&G expects fiscal 2016 all-in sales to be "down high single digits" versus fiscal 2015 results.